Chicago teachers are striking. You may recall that they were demanding a 30 percent raise earlier this year, which would have spiked the average teacher’s salary to nearly six figures. But nobody seems to be talking about what this will do to a pension system already in trouble.
Chicago teachers’ pension fund is woefully underfunded. According to new pension accounting standards, the pension fund has just 32 percent of the money it should have in the bank today in order to earn enough investment income to pay out earned benefits. Without structural reform, the system could very well collapse. There’s a reason for this: Chicago is handing out million-dollar pensions.
Over the last decade, 60 percent of Chicago teachers retired with 30 or more years of experience. So let’s focus on them for a moment. We’ll call them “career teachers.”
For those who retired in fiscal year 2011, the average starting pension was a whopping $77,496 per year. That’s 80 percent higher than the average starting pension in 2000. So what does the higher starting pension mean? It means that a typical career teacher that retired in 2011 will collect $1 million more in pension benefits than one who retired in 2000.
So what’s the cash value of that pension? $1.6 million. If you wanted to retire with the same pension benefits as a Chicago teacher, you would need to have saved $1.6 million. That $1.6 million would then need to be invested so that it could grow over time to ensure you receive your monthly annuity check.And remember: three-quarters of the pension contributions that Chicago teachers are required by law to make into the pension funds are picked up by the taxpayer as a perk.
The average career Chicago teacher already retires as a millionaire pensioner. Taxpayers are tapped out. Everyone knows that taxpayers can’t afford the immediate cost of hiking salaries 30 percent. But they can’t afford the long-term pension costs of hiking salaries, either. That salary spike would boost the cash value of the average career teacher’s pension by hundreds of thousands of dollars. And taxpayers would be left holding the bag.When you’re in a hole, you stop digging. It’s time the taxpayers took away the shovel.
The cost of career teachers’ pensions have soared
Calculation notes: Final average salary and starting pension data was provided by the Public School Teachers’ Pension & Retirement Fund of Chicago. Total pension payouts reflect the payouts over the course of the annuitant’s life, with mortality based upon the Social Security Administration’s actuarial life tables for a 62-year-old retiree. Annual pension payouts were adjusted for a 3 percent compounded cost-of-living adjustment. Cash value reflects the present value of the total pension payouts, with an interest rate set according to the May-July average of Citigroup’s pension discount curve and liability index.
While Illinois public school teachers do not receive Social Security benefits, Social Security benefits have an annual cap of $30,156. The average career teacher’s starting pension is more than twice the maximum benefit a private sector worker could collect through Social Security upon retirement. Approximately 20 percent of private sector workers have access to a defined benefit retirement plan, although many of them have seen their pension plans frozen. In contrast, 58 percent of private workers have access to a defined contribution retirement plan.